Sterling strengthens on growing support for ‘in’ campaign
17/May/2016 • Currency Updates•
Sterling recovered from a three-week low against the US Dollar on Monday, with investors piling into the currency overnight on growing support for the vote to remain in the EU at next month’s referendum.
Opinion polls released last night showed the remain camp significantly ahead in the run-up to the vote on 23 June. The latest ORB poll showed a massive fifteen point lead, while a similar survey from ICM yielded an eight point advantage. Betting odds for a Brexit have now been slashed to as low as 27% by some bookmakers. The possible Brexit remains UK businesses’ primary concern.
However, this week looks set to be data-heavy in the UK economy, starting with the latest inflation figures for April this morning, which were fairly disappointing. Headline consumer price growth declined to 0.3% from 0.5%, while the core measure also dipped by 0.3% to 1.2%.
In a relatively quiet session in Europe on Monday, the Euro was range-bound for much of the day. The single currency ended slightly higher against the US Dollar ahead of the release of both the European Central Bank and Federal Reserve meeting minutes later in the week.
The Japanese Yen fell yesterday after officials in the country once again suggested the Bank of Japan could intervene in the currency market to weaken the currency.
Meanwhile, the Polish Zloty ended the London session as one of the best performing emerging market currencies following the decision of Moody’s over the weekend to keep Poland’s credit rating unchanged amid speculation of a cut.
Commodity-driven currencies also received another boost from an increase in crude oil prices, which rallied over 2% during the day. Oil prices have now almost doubled in value since bottoming in January. The Russian Ruble and Norwegian Krone in particular have strengthened significantly over the past three months, helped in part by a weak US Dollar in addition to the sharp rebound in oil prices.
Major currencies in detail:
The Pound rallied by 0.3% yesterday and by a further 0.75% overnight against the US Dollar following last night’s polls.
Focus in the UK economy remains firmly set on next month’s EU referendum, which is now only five weeks away. At a Reuters summit, Bank of England member Andrew Bailey reiterated that the central bank had contingency plans in place for Sterling in the event of a Brexit, including issuing foreign currency liquidity for banks.
Meanwhile, the Confederation of British Industry became the latest external body to cut its growth forecast for the UK, citing a ‘dark cloud of uncertainty’ hanging over the outcome of the EU referendum. Forecasts for 2016 and 2017 were both slashed to 2% from 2.3% and 2.1% respectively.
Despite a lack of any announcements in the Eurozone, the Euro ended 0.2% higher against the US Dollar yesterday.
With markets closed throughout much of the Eurozone in mark of Whit Monday, there were no economic data releases of note.
Ratings agency Fitch warned yesterday that a Brexit could have implications for European countries with close trade or financial ties to Britain. Countries including Germany, France, Spain and the Netherlands could all be at risk of a credit rating downgrade should the UK vote to leave the EU next month.
Activity in the Eurozone should begin to pick up again later in the week. Eurozone inflation data on Wednesday and the ECB’s meeting minutes on Thursday will be the main events in the Euro-area this week.
The US Dollar index fell by 0.1% yesterday despite some hawkish comments from a Fed policymaker.
Comments from Federal Reserve member Jeffrey Lacker on Monday continued to suggest there remains a sharp divergence between market pricing for Fed hikes and the committee’s expectation for rate increases. Lacker echoed similar sentiments from fellow FOMC member Rosengren last week, claiming that there was a pretty strong case for raising interest rates in June.
Contrastingly, economic data yesterday was poor. The New York Empire State Manufacturing Index was particularly weak. The index plunged in May, falling deep into negative territory to -9.02.
Inflation figures in the US this afternoon will bring the next major data point across the Pond, although this, absent any major surprises, is unlikely to cause significant volatility in the Dollar today.
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